I'm trying to set up a portfolio of ETFs for retirement (about 70% stock index and 30% bond index). I'm going with ETFs primarily because I want something that follows the market index and has low fees.

ETF stock choice so far:Vanguard Total Stock Market Index (VTI)However, it seems to have most of its holdings in large cap companies. Do I need to have an ETF that follows the small and midsize cap companies to balance it out (i.e VXF)? Likewise, do I need an international ETF to further diversify my portfolio (i.e. VXUS)?

I'm also having problems finding the right bond ETF now. My research has led to some potential choices like Vanguard Total Bond Market (BND) and Vanguard Intermediate-Term Corporate Bond (VCIT). But I need more help in this area especially with the Fed just raising the interest rates again.

I'm trying to set up a portfolio of ETFs for retirement (about 70% stock index and 30% bond index). I'm going with ETFs primarily because I want something that follows the market index and has low fees.

ETF stock choice so far:Vanguard Total Stock Market Index (VTI)However, it seems to have most of its holdings in large cap companies. Do I need to have an ETF that follows the small and midsize cap companies to balance it out (i.e VXF)? Likewise, do I need an international ETF to further diversify my portfolio (i.e. VXUS)?

I'm also having problems finding the right bond ETF now. My research has led to some potential choices like Vanguard Total Bond Market (BND) and Vanguard Intermediate-Term Corporate Bond (VCIT). But I need more help in this area especially with the Fed just raising the interest rates again.

Any advice is welcomed.

VTI is a market-cap weighted representation of the investable U.S. stock market. As a market-cap weighted fund, it obviously has more money invested in large cap stocks than small cap stocks. VTI is essentially equivalent to:

If you want to increase your mid- and small-cap exposure, you can buy VO and VB (or VXF - Vanguard Extended Market ETF). Alternatively, you can buy the equivalent mutual fund shares instead of the ETFs.

zneloangelo

New Member

posted: Mar. 16, 2017 @ 1:45p

Stanolshefski,

Do you think it would be wise to balance out the portfolio with more small and mid cap investments? Or should I just leave it as it is and just go with VTI?

stanolshefski

Addicted Member

posted: Mar. 16, 2017 @ 3:04p

zneloangelo said: Stanolshefski,

Do you think it would be wise to balance out the portfolio with more small and mid cap investments? Or should I just leave it as it is and just go with VTI?

My equity to fixed income ratio is about 80-85% equities vs. 20-15% bonds.

My taxable account holds just VTI (which is one of the most tax-efficient funds you can hold) -- with FDIC insured accounts for fixed income.

prozario

Senior Member - 1K

posted: Mar. 16, 2017 @ 3:19p

stanolshefski said: zneloangelo said: Stanolshefski,

Do you think it would be wise to balance out the portfolio with more small and mid cap investments? Or should I just leave it as it is and just go with VTI? I personally split my retirement equity allocation between:

My equity to fixed income ratio is about 80-85% equities vs. 20-15% bonds.

My taxable account holds just VTI (which is one of the most tax-efficient funds you can hold) -- with FDIC insured accounts for fixed income.

try some of those robo site like ml edge, schwap - plug in your Q/A, risk profile. They all show recommended portfolio of ETF they would pick. You can see the what they suggest, and use that as a starting point. It takes 5 mins to do and no signup required.

JW10

Senior Member - 3K

posted: Mar. 16, 2017 @ 10:18p

I am nervous about bond funds as the Fed craws to higher interest rated, bonds achieve their increased interest rate by decreasing the value of the bonds.Tracking some EFTs, which do have market pricing risk as well as interest rate risk, I am currently in different index ETFs which provide some dividends close to or slightly better than bonds over time. Look over DON, NOBL, SDOG, SDY. The attraction to me is diversity different than more popular index funds.I have individual stocks which have demonstrated price risk, but current dividends are in the junk bond range of about 10 per cent.ARR pays monthly - price range last 30 days - (21.30 - 22. 79). I have sold and repurchased some but price risk is part of that formula.Two stocks appear to be more stable, but I have not studied them as long - I just bought more - pays dividends every 3 months. CIM (18.10 - 19.72 ) and NLY (10.54 - 11.11) XDIV soon. That is three months of dividends for a couple of weeks ownership to get started. Do your homework - take small positions - Dollar cost average. Over a longer term, I like the price growth graphs.

stanolshefski

Addicted Member

posted: Mar. 16, 2017 @ 10:27p

JW10 said: I am nervous about bond funds as the Fed craws to higher interest rated, bonds achieve their increased interest rate by decreasing the value of the bonds.Tracking some EFTs, which do have market pricing risk as well as interest rate risk, I am currently in different index ETFs which provide some dividends close to or slightly better than bonds over time. Look over DON, NOBL, SDOG, SDY. The attraction to me is diversity different than more popular index funds.I have individual stocks which have demonstrated price risk, but current interest rate is in the junk bond range of about 10 per cent.ARR pays monthly - price range last 30 days - (21.30 - 22. 79). I have sold and repurchased some but price risk is part of that formula.Two stocks appear to be more stable, but I have not studied them as long - I just bought more - pays dividends every 3 months. CIM (18.10 - 19.72 ) and NLY (10.54 - 11.11) XDIV soon. That is three months of dividends for a couple of weeks ownership to get started. Do your homework - take small positions - Dollar cost average. Over a longer term, I like the price growth graphs. Using dividend equity funds vs bonds significantly increases risk, and greatly reduces diversification -- since OP would already own all or most of these stocks in an S&P 500 or total stock market index fund.

Furthermore, high-dividend yield stocks also have interest-rate risk -- when rates go up the stock price should go down as well.

Also, there's no free lunch for those "three months of dividends for a couple weeks of ownership," since the share price will go down by the amount of the dividend.

JW10

Senior Member - 3K

posted: Mar. 16, 2017 @ 10:35p

All true, but I have done well over the past few months even before the Trump market effect. Of course. past performance is not a valid indication of future performance. This gives OP additional options to consider.

stanolshefski

Addicted Member

posted: Mar. 16, 2017 @ 10:59p

JW10 said: All true, but I have done well over the past few months even before the Trump market effect. Of course. past performance is not a valid indication of future performance. This gives OP additional options to consider.Please don't take it as a knock on your strategy, but (nearly) everyone does great in a bull market.

BostonOne

Senior Member - 4K

posted: Mar. 17, 2017 @ 8:31a

stanolshefski said: JW10 said: All true, but I have done well over the past few months even before the Trump market effect. Of course. past performance is not a valid indication of future performance. This gives OP additional options to consider.Please don't take it as a knock on your strategy, but (nearly) everyone does great in a bull market. No one should judge their portfolio over a few months. Doing well should be defined as the performance over 10, 20, 30+ years.

AlwaysWrite

Thrifty Member

posted: Mar. 17, 2017 @ 11:01a

Honestly, whether you just go for simplicity and put it all into some combination of VTI and BND, or "slice-n'-dice" more with mid-cap, small cap, international, REITs, international bonds, etc. -- the main drivers of your eventual long-term performance will mainly be (a) starting early, (b) how much can you save & invest, (c) using tax-advantaged accounts like IRAs, and (d) avoiding fees. All of those Vanguard funds are low fee, so you are on the right path whether you just use VTI for your stock allocation for simplicity, or also add some VB or VXUS.

I would recommend starting simple, just VTI and BND. Once you have it invested and are able to roll with the ups and downs of the market and not freak out, learn more, and get more experience, you can start adding new contributions to some more complex mix if it makes you happy. But don't feel like you're somehow "missing out" if you just start with VTI and BND. Most people would be very very happy if they started a Roth IRA when they were 18 and just stuck it into VTI and forgot about it for 40 years.

stanolshefski

Addicted Member

posted: Mar. 17, 2017 @ 11:05p

AlwaysWrite said: Honestly, whether you just go for simplicity and put it all into some combination of VTI and BND, or "slice-n'-dice" more with mid-cap, small cap, international, REITs, international bonds, etc. -- the main drivers of your eventual long-term performance will mainly be (a) starting early, (b) how much can you save & invest, (c) using tax-advantaged accounts like IRAs, and (d) avoiding fees. All of those Vanguard funds are low fee, so you are on the right path whether you just use VTI for your stock allocation for simplicity, or also add some VB or VXUS.

I would recommend starting simple, just VTI and BND. Once you have it invested and are able to roll with the ups and downs of the market and not freak out, learn more, and get more experience, you can start adding new contributions to some more complex mix if it makes you happy. But don't feel like you're somehow "missing out" if you just start with VTI and BND. Most people would be very very happy if they started a Roth IRA when they were 18 and just stuck it into VTI and forgot about it for 40 years. I can't underscore enough how much your savings rate matters for success. I'm in my mid 30s, and 2016 was the first year that my investment return exceeded the amount of new investments.

BostonOne

Senior Member - 4K

posted: Mar. 18, 2017 @ 6:23a

stanolshefski said: AlwaysWrite said:

I can't underscore enough how much your savings rate matters for success. I'm in my mid 30s, and 2016 was the first year that my investment return exceeded the amount of new investments. Congrats on that milestone! It feels good when your money starts working harder than you.

Freakazoid

Senior Member

posted: Mar. 18, 2017 @ 2:26p

turtlebug said: You might want to take a look at the bogleheads forum. Or better yet, check out the Bogleheads wiki or the Bogleheads Guide to Retirement Planning. Even on a site dedicated to investing/saving, there will be a hundred different answers to each of your question, all with legitimate basis. No one has a crystal ball to know what the future holds, so everyone is just guessing based upon history. Read as much as you can and pick one. You can always tweak in the future (especially if it's in a tax-free/deferred account). But as many have commented, the key is actually saving. It's going to get you to your goal a heck of a lot faster than squeezing out an extra 1%

cleanbeat

Senior Member

posted: Mar. 19, 2017 @ 3:43a

JW10 said: I am nervous about bond funds as the Fed craws to higher interest rated, bonds achieve their increased interest rate by decreasing the value of the bonds.Tracking some EFTs, which do have market pricing risk as well as interest rate risk, I am currently in different index ETFs which provide some dividends close to or slightly better than bonds over time. Look over DON, NOBL, SDOG, SDY. The attraction to me is diversity different than more popular index funds.I have individual stocks which have demonstrated price risk, but current dividends are in the junk bond range of about 10 per cent.ARR pays monthly - price range last 30 days - (21.30 - 22. 79). I have sold and repurchased some but price risk is part of that formula.Two stocks appear to be more stable, but I have not studied them as long - I just bought more - pays dividends every 3 months. CIM (18.10 - 19.72 ) and NLY (10.54 - 11.11) XDIV soon. That is three months of dividends for a couple of weeks ownership to get started. Do your homework - take small positions - Dollar cost average. Over a longer term, I like the price growth graphs. Not to knock anyone's investment approach, but don't get too excited about anything that pays very high (6%+ in the current market) dividends such as CIM and NLY. It may seem like easy money, but often you will give up equivalent or greater price appreciation by chasing high dividend yields. There is a reason the market demands high yields and the reason is risk.

As far as bond funds and dividend stocks / funds, you often hear folks complain that prices will decline as yields rise. Keep in mind that bond funds constantly roll-over maturing bonds and replace them with new bonds which will increase your yield over time, meaning any price drop is likely to be temporary depending on the average durations of their holdings. The same thing goes for dividend stocks as the boards of directors will need to keep their yields up to compete with fixed income. In short, the damage done by rising interest rates on asset prices is often overstated and short-term. Investing is a long-term activity.

I agree with those who advocate starting out with some ETFs and learning about alternatives over time. Take your time and study.

zneloangelo

New Member

posted: Mar. 20, 2017 @ 2:44p

Thanks everyone. Primarily, I wanted to have something that I can just buy and hold without doing anything additional. At least that's the goal for the retirement portfolio. It seems that a long term approach involves both VTI and BND. Am I correct in this assumption?

My non-retirement accounts (ie. taxable accounts) may involve a more hands on approach with more ETF selections. Thanks Stan for letting me know about VTI in that regards as well.

Has anyone here done any of the robo advisors like Betterment or Wealtfront? I was reading another website about how these sites should be used as an Emergency Money Account vs. having a savings because of the higher returns and tax harvesting features.

sechs

Cranky Member

posted: Mar. 22, 2017 @ 7:13p

zneloangelo said: Thanks everyone. Primarily, I wanted to have something that I can just buy and hold without doing anything additional. At least that's the goal for the retirement portfolio. It seems that a long term approach involves both VTI and BND. Am I correct in this assumption?

Target date funds or etfs are one-stop shopping for predetermined mixes of stocks/bonds. Auto-rebalancing and the allocation to bonds increases at you approach the Target date, The Target date is when you want to start spending the funds.

cleanbeat

Senior Member

posted: Mar. 22, 2017 @ 10:26p

I did some work on robo-advisers a couple of years ago and did not find any particular problems. You do have to pay them annual fees depending on your account balance, and IIRC the annual fee is not very attractive with small balances. Some will give you a better annual fee if you automate periodic deposits from your bank. I would not use a robo-adviser for emergency funds as they focus on stock and bond funds that fluctuate with the markets. Emergency money should be liquid in money-market or savings accounts.

My gut feel is robo-advisers can be helpful for those with large balances, but I would start with a simpler approach utilizing a discount broker like schwab.com or fidelity.com. The robo-adviser is just one more party between you and your money. They are just going to go out and buy mutual funds or ETFs you could buy yourself, and you will pay them for the service.

As for Target -date funds, again, they are another party between you and your money. Again, they buy funds, re-balance and charge you for it. If they take 1% per year between expenses and trading friction, that's 12-15% per year of your expected annual return of 6% to 8%. Sounds small, but over forty years it's a killer. Like a third of your ending balance. Don't give it to them.

Just decide on your desired split among US stocks, US bonds, international, etc., buy ETFs in those proportions, and add new money as needed to keep them close to your desired split. Simple, cheap, tax-efficient. When you have a quarter-million dollars, you can do something different. You need to get the ball rolling. Remember, you can move your money from broker to broker later.

There are two phases of investment: accumulation while you are working and distribution after you retire.

In distribution it may make sense to harvest gains and losses, re-balance, etc.

BTW, how old are you? 30% bond allocation seems high unless you are 80.

zneloangelo

New Member

posted: Mar. 27, 2017 @ 12:24p

cleanbeat,

Thanks for the advice. I'm in my 30s and that's why I decided to go with 30% bonds and 70% stocks in my portfolio. You think I should have a lower bond allocation?

cleanbeat

Senior Member

posted: Mar. 27, 2017 @ 3:07p

That's the conventional wisdom, but I don't buy it. I think your first priority should be to build up a common stock allocation. Amazing things happen when you own common stocks for forty years. Bonds, not so much. I wouldn't worry about your bond allocation until you are at least forty years old, maybe later depending on interest rates. If the ten-year Treasury gets close to 10% (it's 2.37% today), I'd reconsider. Buy stocks regularly, buy faster when the market falls. IMHO.

zneloangelo

New Member

posted: Mar. 30, 2017 @ 4:07p

So I ended up going with ETFs only for my Traditional IRA: 80% VTI, 10% VXUS, and 10% BND. But I decided to go with the mutual fund versions (admiral shares) for my Roth instead since I wanted to take advantage of DCA. Unfortunately, the brokerage I used does not have commission free trades. It costed me 6.95 per ETF, which isn't bad really (roughly $21). Except that I can't do DCA with the ETFs without incurring 6.95 purchase fee every time. The best strategy for the Trad seems to be to move one large lump sum at a time and then allocate it to the appropriate ETFs. The mutual funds also cost $35 per mutual fund purchase ($105), but there will fortunately be no fees afterwards once DCA contributions is set up.

cleanbeat

Senior Member

posted: Mar. 30, 2017 @ 6:14p

You're on the right track. I wouldn't worry too much about one-time transaction fees; it's recurring fees and taxes that kill wealth. Buy quarterly or every six months if it bugs you. I hope your mutual funds didn't nail you with front-end or back-end loads. Those mutual fund guys are always coming up with some crap to screw us over. Keep contributing and best of luck! You figured this stuff out about a decade before me!

zneloangelo

New Member

posted: Mar. 30, 2017 @ 8:11p

Thanks for encouragement cleanbeat. Yeah, the mutual funds have no loads. I was able to get the Vanguard admiral share versions without having to put down a minimum investment amount.

Well done! Are you planning to re-invest dividends automatically? I prefer taking my dividends in cash and then re-investing as needed to maintain my allocation. Either way you will be fine as you are avoiding taxes and fees, the biggest wealth killers. They seem trivial in the short term but investing is a long-term process. Keep it up and keep contributing. You are going to be wealthy! And keep reading and learning... seekingalpha.com and Cullen Roche are among my favorites.

sechs

Cranky Member

posted: Mar. 31, 2017 @ 11:23a

cleanbeat said: That's the conventional wisdom, but I don't buy it. I think your first priority should be to build up a common stock allocation. Amazing things happen when you own common stocks for forty years. Bonds, not so much. I wouldn't worry about your bond allocation until you are at least forty years old, maybe later depending on interest rates.OP isn't buying common stocks; he's getting ETFs. And, in any case, if the stock market tanks, your investments will go with them.

This is a retirement that needs to be there in twenty to thirty years, not play money. Yes, you lose possible upside by taking on more bonds, but you also lose possible downside. It's a trade-off worth taking.

prozario

Senior Member - 1K

posted: Mar. 31, 2017 @ 11:39a

zneloangelo said: Thanks for encouragement cleanbeat. Yeah, the mutual funds have no loads. I was able to get the Vanguard admiral share versions without having to put down a minimum investment amount.

Over 10-15 years .. you'll probably beatout 90% of funds/investors just simply going with index type fund/etf. Good job.

zneloangelo

New Member

posted: Mar. 31, 2017 @ 12:51p

cleanbeat,Yes I am planning on automatically reinvesting the dividends. I guess I'm trying to be as hands off as possible. Didn't know about the tax implications since this was a tax sheltered account. But good to know when I set up an index fund outside of retirement.And I've been reading a lot of different sources like listenmoneymatters and going through the boglehead forums. But the source that got me started on all of this was a book called "The Wealthy Barber" by Dave Chilton. Have you read it?

marginoferror

Senior Member

posted: Mar. 31, 2017 @ 1:47p

zneloangelo said: cleanbeat,Yes I am planning on automatically reinvesting the dividends. I guess I'm trying to be as hands off as possible. Didn't know about the tax implications since this was a tax sheltered account. But good to know when I set up an index fund outside of retirement.And I've been reading a lot of different sources like listenmoneymatters and going through the boglehead forums. But the source that got me started on all of this was a book called "The Wealthy Barber" by Dave Chilton. Have you read it? Just something to consider - generally international investments can provide a slight tax benefit over domestic ones, so all else being equal, you want to put your international investments in taxable accounts. However, as I'm sure you know, all else isn't equal, but it's just something to consider.

It doesn't mean you should necessarily dump all domestic investments in your taxable account and dump all international investments in your retirement account even if you could reach your goal allocation like this, but maybe have international investments make up a slightly higher percentage of taxable investments than the percentage in retirement accounts.

However, as long as you're holding, understand that with whatever you're doing, tax effects are (generally) just tweaks to your strategy. Unless you have a very large portfolio or some very specific tax characteristics, tax effects don't generally turn a bad investment decision into a good one.

cleanbeat

Senior Member

posted: Mar. 31, 2017 @ 8:07p

sechs said: cleanbeat said: That's the conventional wisdom, but I don't buy it. I think your first priority should be to build up a common stock allocation. Amazing things happen when you own common stocks for forty years. Bonds, not so much. I wouldn't worry about your bond allocation until you are at least forty years old, maybe later depending on interest rates.OP isn't buying common stocks; he's getting ETFs. And, in any case, if the stock market tanks, your investments will go with them.

This is a retirement that needs to be there in twenty to thirty years, not play money. Yes, you lose possible upside by taking on more bonds, but you also lose possible downside. It's a trade-off worth taking. He's buying ETFs and mutual funds, some of which hold primarily common stocks. Opinions differ on bond allocations. You are welcome to yours.

To OP I have not read "The Wealthy Barber" but I've read "The Millionaire Next Door" which I think makes similar arguments.

By the way, I am not offering advice, just sharing what has worked for me.

zneloangelo

New Member

posted: Apr. 12, 2017 @ 2:27p

Rebalancing questions:1) How do you rebalance?2) How often do I need to rebalance my portfolio (especially ones that have index funds and etfs)

stanolshefski

Addicted Member

posted: Apr. 12, 2017 @ 9:34p

zneloangelo said: Rebalancing questions:1) How do you rebalance?2) How often do I need to rebalance my portfolio (especially ones that have index funds and etfs) If you use a robo advisor or a Target-date fund, they do rebalancing for you.

The easiest way to rebalance is once a year when you make contributions by directing the new contributions to the asset classes that are underweighted compared to your Target asset allocation.

cleanbeat

Senior Member

posted: Apr. 13, 2017 @ 1:26p

zneloangelo said: Rebalancing questions:1) How do you rebalance?2) How often do I need to rebalance my portfolio (especially ones that have index funds and etfs)1. Decide on allocation targets for common stock, bonds, and any other asset types you want (e.g. 80% stock, 10% bonds, 10% cash)2. Acquire ETFs or individual securities or mutual funds according to your allocation targets (e.g. 60% stock ETF, 20% individual stocks, 10% bond ETF, 10% cash)3. As time goes by, some positions will perform better than others, resulting in your actual allocations drifting away from your Target allocations4. Use new contributions to adjust your allocations to get closer to your targets5. Around the end of each year, check your allocations; if the actual allocations deviate significantly (say 10 percentage points or more) from your targets, consider selling the overweight to add to the underweight but remember you may incur taxes on capital gains (proceeds minus cost) in a taxable account, particularly on short-term capital gains6. As you grow older, consider adjusting your Target allocations to decrease exposure to stock market risk

All of this information may be found on google, and it's faster than waiting for one of the knuckleheads here to respond.

By the way, I don't know why someone redded my comment about common stocks and ETFs, but I guess some people ("OP isn't buying common stocks; he's getting ETFs.") don't understand an ETF (exchange-traded fund) can be a common stock ETF, large-cap common stock ETF, small-cap common stock ETF, preferred stock ETF, international common stock ETF, US corporate bond ETF, US municipal bond ETF, international corporate bond ETF, etc. Most ETFs concentrate on a particular asset type. When I refer to a "common stock allocation", that can include common stock ETFs or mutual funds as well as individual common stocks.

zneloangelo

New Member

posted: Apr. 15, 2017 @ 1:04p

stanolshefski and cleanbeat, thank you for your responses. It was very helpful. And yes, I know that I could have googled how to rebalance. I actually did. But I like to check all sources, including the knuckleheads here. You guys actually provided some good information that I couldn't find elsewhere. It's nice to know that I could rebalance by shifting the contributions to that area. The way my brokerage is, I would be charged a transaction fee for selling those shares, and then another transaction fee for using it to buy more shares in the underweight portion of my portfolio. So I will probably use contributions right now for the time being.

I did find it interesting that there seems to arguments against rebalancing at all. The obvious was in a taxable account like cleanbeat mentioned.

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